June 22, 2004 by Canadian Underwriter
Rising interest rates dampening investment results should prolong the hard insurance market through the end of 2005, Swiss Re experts said at the reinsurer’s “Mid-Year Economic and Insurance Industry Teleconference”.
“We expect the next year to be good for corporate profits, good for job growth, but a challenging year for investors,” says Swiss Re chief economist Kurt Karl, noting the Federal Reserve should be forced to raise interest rates to close to 2% by the end of 2004 by slight inflationary pressure. In fact, interest rates should jump 25 basis points on June 30.
Moderate growth is predicted for property & casualty insurers, adds Swiss Re senior economist Thomas Holzheu. “With market conditions improving, we expect the rating agencies to follow the market by issuing more upgrades and fewer downgrades by the end of this year or beginning of next year.”
While rising interest rates will boost insurer investment returns (largely held in bonds) after 2005, it will dampen overall GDP growth. In the near term, insurers will continue to feel capital pressure that is likely to force underwriting discipline to be maintained.
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